ON ARDAL S ACTIVITIES

Transcription

1 PRELIMINARY REPORT ON ARDAL S ACTIVITIES (2016 REVIEW AND 2017 OUTLOOK) FEBRUARY /14

2 Agentúra pre riadenie dlhu a likvidity (hereinafter referred to as the "ARDAL ), with its registered seat at Radlinského 32, Bratislava, Identification No.: acting on behalf of the Ministry of Finance, manages the state debt according to the Act. No. 291/2002 Coll. on State Treasury, as amended, in line with the Debt Management Strategy approved for the given period by the Government of the Slovak Republic. This preliminary report on the ARDAL s activities for 2016 has been prepared on the basis of preliminary data and information. After completing the approval process, the final data for 2016 will be provided in the Report on ARDAL s activities for For the avoidance of doubt, we note that all the data contained herein are informational only and should not be used for legal purposes. The submitted information has no influence on investments or sales of the government securities. ARDAL is not responsible for any claims, losses, liabilities or expenses incurred as a result of decisions of these investments based on the data provided in this document. 2/14

3 Key information Overview 1. Ministry of Finance of the Slovak Republic obtained funding of EUR 5.8 billion in 2016 (covered by syndicate, auctions of government securities and loans), corresponding to 100.1% of the planned borrowing needs for 2016 mentioned in the Act on State Budget for Last year, ARDAL accomplished sales of 9 auctions of 19 government bonds and one T-Bill auction. The overall demand reached EUR billion and bonds in total nominal value of EUR billion were sold. In addition to the auctions, one syndicated sale was also accomplished in A new line of 15-year bond with a nominal value of EUR 1 billion was opened through syndication (total demand of EUR 1.21 billion). 3. ECB (NBS) purchases of Slovak government bonds, under the quantitative easing programme (the PSPP), significantly contributed to further decline in the bond yields. Interest rates development and active portfolio management were reflected in the decrease in weighted average interest rate of government liabilities from 2.84 % p. a. in 2015 to 2.58 % p. a. at the end of The weighted average maturity of the state debt at the end of 2016 remained unchanged at 7 years with the weighted average duration of 6.4 years. 5. Total buy-backs of bonds maturing in 2016 and 2017 reached the face value of EUR 789 million. 6. Management of the state debt was in line with the current strategy of the state debt. The risks of the Slovak debt portfolio reached lower levels than the specified parameters. 7. The biggest problem of the management of the state debt in 2016 was being in accordance with the Act on Fiscal Responsibility just as in Another challenge was the environment of negative interest rates that caused unstable and unpredictable behaviour of investors. Table 1: Rating as of 31 st January 2017 Rating of the Slovak Republic Assignment Date Agency Level Outlook January 2017 Standard & Poor's A+ Stable November 2014 Moody's A2 Stable August 2016 Fitch A+ Stable Chart 1: Rating History of the Slovak Republic 3/14

4 Risk management ARDAL manages the debt portfolio risks in accordance with the approved Government Debt Management Strategy for the years This strategy is based on the strategy valid until 2014 and continues in monitoring of refinancing, and interest rate risks with a slightly modified target parameter values. In the period of years , the goal is a close approximation to the target values or maintaining the parameters as closely as possible to the target values. As regards the refinancing risk, there is a strategic intent to maintain the value of the liabilities to be redeemed within one year close to 20% of total liabilities. As for the refixing risk, there is a goal to maintain the value of the re-fixed liabilities within one year close to 25% of total liabilities. The value of refinancing risk and interest rate risks within five years should be near 55% of redeemed / re-fixed liabilities within 5 years of total. Compared to the previous period, the compliance with the above mentioned objectives provides for Slovakia less refinancing and interest rate risk from the perspective of the government debt. This way, it is slowing down a gradual decline of the relative debt costs, which also brings increase in the immunity of the portfolio against potential market shocks. Chart 2: Risk Indicators of the Slovak Debt Portfolio for the next year 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Refinancing risk Value set in strategy for refinancing risk Refixing risk Value set in strategy for refixng risk Chart 3: Risk Indicators of the Slovak Debt Portfolio for the next 5 cumulative years 80% 75% 70% 65% 60% 55% 50% 45% 40% Refinancing risk Value set in strategy for refinancing and refixing risk Refixing risk 4/14

5 Years The weighted average maturity of the state debt portfolio reached the value 7 years and the duration was 6.4 years at the end of These values are similar to the debt portfolio characteristics of the Eurozone core countries and EFSF. Chart 4: Average Maturity and Duration of the Slovak Debt Portfolio 7,5 7,0 6,5 6,0 Average maturity Average duration 5,5 5,0 4,5 4,0 3,5 Chart 5: Slovak Debt Portfolio according currencies before hedging (CC IRS) CHF 2,50% NOK 1,15% JPY 0,09% USD 3,27% EUR 92,99% 5/14

6 Debt and liquidity management The interest rates development in capital markets in the Eurozone in 2016 was mainly driven by the undergoing quantitative easing (QE) from the ECB, the surprising referendum results in the UK about leaving the EU and the unexpected presidential election results in the USA. Chart 6: Interest rates of selected euro area countries (10 year bonds) Source: Bloomberg The yields of all euro area countries continued in slight decrease in the first half of 2016 thanks to the QE by ECB. The UK referendum about leaving the EU was a further factor that pushed the yields even lower. The yields dropped significantly after announcement of the results and hit the all-time lows in the summer of The German 10Y bond touched the -0.2% level and the Slovak 10Y bond was at the historical low of 0.2%. The market reaction to the referendum results started to slowly fade away (the fastest normalization was in the stock market). The yields continuously reverted their sharp decline. Strong impetus to yield development arose from the US presidential election. The victory of Mr. Donald Trump was not anticipated. Robust tax cuts and expenditures growth are expected to take place during his presidency. This should bring the increase in inflation. The market reaction was straightforward strong increase in treasury yields and yields in euro area as well. 20 tranches of government securities were sold via competitive auctions in One bond line was opened and sold via syndicated sale through 3 chosen primary dealers. The total demand in face value (including syndicated sale and T-bills) reached EUR 8.2 billion and accepted bids in face value reached EUR 5.4 billion (including syndicated sale and T-bills). 6/14

7 Table 2: Overview of the Government Securities Sell Auctions and Syndicate in 2016 Auction Date Maturity Date Auction Type Accepted Bids (mil. EUR) Bid/ Cover Ratio Average YTM (% p.a.) ASW Spread (% p.a.) ŠD 223 (SLOVGB 3 ⅜ 11/15/24, ISIN SK ), Coupon Rate 3.375% p. a american american ŠD 226 (SLOVGB 1 ½ 11/28/18, ISIN SK ), Coupon Rate 1.5% p. a american american american american ŠD 227 (SLOVGB 3 ⅝ 01/16/29, ISIN SK ), Coupon Rate 3.625% p. a american ŠD 228 (SLOVGB 1 ⅜ 01/21/27, ISIN SK ), Coupon Rate 1.375% p. a american american american american american ŠD 229 (SLOVGB 1 ⅝ 01/21/31, ISIN SK ), Coupon Rate 1.625% p. a syndicate american american american ŠD 230 (SLOVGB 0 11/13/23, ISIN SK ), Coupon Rate 0.000% p. a dutch american american ŠD 231 (SLOVGB 0 ⅝ 05/22/26, ISIN SK ), Coupon Rate 0.625% p. a dutch ŠPP 15 (SLOVTB 0 11/27/17, ISIN SK ), Discounted T-Bills dutch Besides the standard money market interbank transactions, ARDAL continued carrying out buy-backs of the government securities maturing in 2016 and The overall amount (in nominal value) of bought back bonds was EUR million. There were buy-backs of the following bonds - (ŠD 208 SLOVGB 4 ⅕ 04/04/17; ŠD 213 SLOVGB 3 ½ 02/24/16; ŠD 218 SLOVGB Float 11/16/16; ŠD 219 SLOVGB 4 ⅝ 01/19/17). The buy-backs were executed through the direct purchases in the secondary market. 7/14

8 Chart 7: Gross and Net Issuance Chart 8: Primary Market of Slovak Government Bonds According to Years Chart 9: Redemption Profile as of /14

9 Syndicate sale of the 15-year Government Bonds Joint Book-runners: Barclays, Natixis, SLSP (Erste Group) Nominal Amount: EUR 1.0 billion Maturity Date: 21 st January 2031 Coupon: 1.625% p. a. Re-offer Spread vs. Mid-swaps: 0.38% p. a. Re-offer Price: % Re-offer Yield: 1.633% p. a. The Slovak Republic (rated A2/A+/A+, all stable), represented by the Debt and Liquidity Management Agency ( ARDAL ) priced today a new 15-year EUR 1 billion transaction. Barclays, Natixis and Slovenská sporiteľňa (Erste Group) were mandated as Joint-Lead Managers and Bookrunners. Taking advantage of favourable primary market dynamics during the second week of January the Slovak Republic announced their new 15-year EUR benchmark transaction on Wednesday, 13th January at 02:00pm CET. On Thursday January 14th, at 09:30am CET, initial price thoughts were released at mid swaps (MS) + high 30s. The initial indications of interest (IOIs) grew up to EUR 800m by 11:45am CET, when the price guidance was set at MS + 38 bps area. Despite a challenging market backdrop, the orderbook continued to grow and eventually reached more than EUR 1.2 billion (including EUR 200m of joint lead manager s interest) by 01:10pm CET. The deal was priced at a spread of MS + 38 bps, with a size of EUR 1 billion thanks to high quality accounts present in the orderbook. The majority of bonds was allocated to Asset Managers with 42% followed by Banks (37%), and Insurance Companies (11%). Significant international demand was delivered by German/Austrian accounts (34%). UK investors (19%) were also active, together with Nordic (5%), Italian (5%), and French (4%) investors. The natural domestic bid was quite strong with about 22%. The remainder was spread across other Europe Chart 10 and 11: Investors type distribution Geographical distribution 9/14

10 Outlook for 2017 The gross funding needs (bond redemptions and deficit of state budget) will be EUR 6.5 billion in 2017 (government bonds, treasury bills and government loans). This amount is based on Act on State Budget for 2017 and in line with the Act on State Debt and Guarantees. ARDAL intends to open at least 3 new lines of government bonds via syndicated sale or auction in The following lines will be opened depending on the market conditions and the investors demand: new line with issue size of EUR 3.0 billion in spring 2017, with maturity according to market conditions; new line with issue size of EUR 3.0 billion in autumn 2017, with maturity according to market conditions; possible new line with issue size of EUR 1.5 billion 3.0 billion during 2017, with maturity according to market conditions with the possibility to be sold together with other new line via dual tranche; possible new line with issue size of EUR 1.5 billion during 2017 via auction, with maturity according to market conditions. The total amount to be sold via syndicated sale or initial auction sale is supposed to reach maximum EUR 3.0 billion regardless of the number of transactions. Table 3: Government bond auctions in 2017 Auction Settlement Date Date Bond ŠD223, ŠD227, ŠD for decision for decision for decision for decision for decision for decision for decision for decision for decision for decision for decision The bond auctions will take place once per month usually on the third Monday of a month. Based on liquidity requirements, debt management and demand of investors, more bonds can be auctioned in one auction day. Similarly to 2016, it is expected that auction of 1-3 bonds will take place in each auction day.all auctions are flexible therefore, they are stated as for decision in the auction calendar. The decision about the auctioning bonds will be mainly based on previous communication with Primary Dealers (PD). The settlement date of trades resulting from auction is D+2. July, August and December auctions are not planed but can be carried out based on PD request and on agreement with the Debt and Liquidity Management Agency (ARDAL). 10/14

11 Table 4: Opened lines of bonds (available for auctions) as of 31 st January 2017 Bond Maturity Outstanding Available ISIN Bloomberg Issue Date Serie Date (mil. EUR) (mil. EUR) ŠD 223 SK SLOVGB 3 ⅜ ŠD 227 SK SLOVGB 3 ⅝ ŠD 228 SK SLOVGB 1 ⅜ ŠD 229 SK SLOVGB 1 ⅝ ŠD 230 SK SLOVGB 0 11/13/ ŠD 231 SK SLOVGB 0 ⅝ T-Bills issue in the year 2017 One T-Bill auction a month will take place in the first 3 months of T-Bill line 15 (issue size EUR 1.5 bn., issued on November, 28 th 2016) maturing on November, 27 th 2017 will be sold in the auctions. Table 5: Opened T-Bills line (available for the auctions) as of 31st January 2017 T-Bill ISIN Issue Date Maturity Date Outstandin g (mil. EUR) MoF Own Portfolio (mil. EUR) Issue Size (mil. EUR) ŠPP 15 SK Primary Dealers as of 31 st January 2017 Barclays Bank plc Citibank Europe plc Československá obchodná banka, a.s., (KBC Group) Deutsche Bank AG HSBC France Natixis Slovenská sporiteľňa, a.s., (Erste Group Bank) Société Générale Tatra banka, a.s., (RZB Group) UniCredit Bank Czech Republic and Slovakia, a.s. Všeobecná úverová banka, a.s., (Intesa Sanpaolo Group) 11/14

12 Conclusion and Outlook for 2017 Europe, just like the whole world, experienced several turbulent events. Unexpected presidential election results in the US together with foreign policy direction in the UK (BREXIT) will probably be the main drivers of the next EU highlights. Mild EU economic recovery supported by the weak euro and low interest rates could be undermined by elections in the Netherlands, France or Germany. Standard political leaders may be replaced by more radical ones with direct links to uncertainty in the financial markets. The main driver behind the development of the interest rates in Slovakia in 2017 will be ECB with its activities and decisions. The ECB will have to decide about the future development of the QE, possible tapering and the monetary policy in general. These uncertainties pose another reason why it will be necessary to keep some degree of flexibility in the debt management process. Slovakia should belong to the fastest growing economies in the whole of the EU in 2017 (according to European Commission forecast). The expected real GDP growth at 3.0% creates good conditions for further decrease in structural budget deficit. The public debt should be kept around 52% of the GDP level in 2017 and Slovakia will stay among the least indebted countries in the Eurozone. The main goals in the debt management conducted by ARDAL will be preserving the maximum transparency of the issuance policy, the improvement of selling infrastructure of the government securities and increase of the liquidity at the secondary market. These goals should be underpinned by Central Depository connection to common technological platform of European depositories Target2- securities (T2S). By this connection, Slovakia will become an integral part of the common EU capital market. The establishment of standard Delivery versus Payment settlement (DvP) opens the opportunity to connect the Slovak market to MTS the most used secondary market platform for government securities within the EU. The goal of ARDAL is to implement at least one secondary market platform for trading the Slovak government bonds with the overall incentive to increase the liquidity and price transparency on the secondary market. 12/14

13 Contacts Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency Radlinského Bratislava Slovak Republic Tel: Fax: Webpage: Reuters Code: Bloomberg Code: DLMA DLMA Useful links (Debt and Liquidity Management Agency) (Ministry of Finance of the Slovak Republic) (Statistical Office of the Slovak Republic) (National Bank of Slovakia) (European Central Bank) (State Treasury) (Central Depository of Securities) (Bratislava Stock Exchange) (eurostat) (ESDM) 13/14

14 Notes 14/14